By: Lauren Campbell, CPA
“I can’t wait for my next unexpected tax bill!” said No One Ever.
It doesn’t have to feel this way. The Freckled Strawberry will equip you with the tools to approach your tax strategy with confidence through education, knowledge and preparation.
With some simple tax planning strategies, you can be prepared for Uncle Sam’s invoice every Tax Day on April 15th.
Here’s what you need to know and what to implement in (now) January (now):
January is always a great time to get ahead. In this case, it’s actually the last quarter for estimated tax payments for the 2021 tax year. January 15th lands on a Saturday this year, and the following Monday is Martin Luther King, Jr.’s Birthday, the due date for fourth quarter estimated tax payments is on Tuesday, January 18, 2022. Calculating and paying your estimated taxes can help you avoid underpayment tax penalties. If you need help with calculations, call us. We can connect you with someone who can help you get this done correctly.
Another important January deadline is the 1099 filing deadline for business owners. If you made any payments to individuals who are not employees in an amount of at least $600 in the 2021 tax year, you are required to issue a 1099-MISC or 1099-NEC by January 31, 2022. Because 1099s are necessary to complete individual tax returns, the 1099s must be issued by the deadline to provide ample time for tax filing. Call if you feel any hesitation in how to go about accomplishing this filing. We can help!
The Five Seasons: Spring, Summer, Fall, Winter, …and Tax Season?
Stay diligently organized, every single season.
Organization is the best discipline you can implement when gearing up for tax season. If this is your first year filing a tax return for your business, you will quickly learn that having an organization system implemented throughout the year is key to a seamless tax season for you and your tax preparer. If you need an accountant or would like to explore a new accountant, please set up a meeting in Calendly and we will connect you with a qualified professional.
Beginning this month, you may begin to receive an influx of tax documents in your inbox.
- DON’T throw these tax documents out, it’s not junk mail!
- DO keep these important documents in a secure location.
Having all your documents readily available will ensure you are providing the most accurate and complete information on your tax return.
Organization is not only about calculating what you may owe, but also a great time to figure out what you can deduct.
Instead of scrambling at year-end trying to recall what deductions occurred throughout the year, it is best to keep a record of all activity whether in a folder, spreadsheet, or accounting software. Your tax preparer will be able to identify which expenses and activities are deductible for you.
Already Looking Ahead? Great!
Now that we’ve covered how to handle our 2021 taxes, it’s not a terrible idea to start looking ahead. The organization strategies will help you year-after-year and your tax preparer will greatly appreciate the effort as well.
Are there strategies to reduce your taxable income?
Definitely. Most strategies must be implemented early in the year to maximize your tax savings. Tax rules and regulations are constantly changing. With some planning you can reduce your tax burden also reduce your tax filing burden as well. Creating and implementing a system to track all your necessary files and changes in your business is key to a seamless tax season.
Certain taxpayers have their taxes withheld throughout the year, pay quarterly estimated taxes, or a combination of both. Quarterly estimated taxes are due each year as follows:
- First quarter: April 15
- Second quarter: June 15
- Third quarter: Sept. 15
- Fourth quarter: Jan. 15
The following are two notable strategies to optimize your 2022 tax year:
- Section 179 of the Internal Revenue Code allows businesses to immediately deduct depreciable assets as a business expense (up to a limit), as opposed to depreciating over several years. This lowers your current year tax liability when you are investing depreciable assets into your business. The amount deducted is limited to the amount of taxable income, up to 100% for the 2022 tax year.
For example, you may be able to immediately deduct expenses for purchased assets such as equipment, vehicles, and even software. This is great for small businesses in early growth stages as it can help manage cash taxes.
- Bonus depreciation also allows a total 100% deduction in the current year for a business, but without any limitations – meaning that the utilization of bonus depreciation in 2022 can create a net loss. This is the last year that a business owner can deduct 100% of the cost of the asset on the current year tax return for both Section 179 and Bonus depreciation.
For example, a business owner may be able to deduct the full amount of an asset grouping put into place in the 2021 year – above and beyond any limits in governed by Section 179. Again, this can help a business in growth stages put key assets into their business to kick-off and / or grow, while managing their cash taxes.
Regularly working with your tax professional can help ensure not only compliance with ever-changing tax laws, but optimization of your tax profile. A quarterly check-in can prevent an unexpected tax bill or other surprises. Please call us, DO ask us for help often!
It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt
THE AUTHOR:
Lauren Campbell, CPA
